Mexico Seeks Sale of More Bonds in Japan, Europe, Ministry Says

By Jose Enrique Arrioja and Verónica Espinosa Navarro

Jan. 12 (Bloomberg) -- Mexico will look for opportunities in Japan and Europe to sell bonds as the country moves to refinance $2.4 billion debt maturing this year, said Gerardo Rodriguez, the head of the Finance Ministry’s Public Credit Department.

Mexico yesterday sold $1 billion of bonds in the country’s first international offering since its credit rating was cut by Standard & Poor’s and Fitch Ratings. The bonds yield 5.25 percent, or about 1.42 percentage points more than U.S. Treasuries, the Finance Ministry said in a statement.

“We continue to explore Japan and Europe to issue more bonds according to our annual financing plan,” Rodriguez said in a telephone interview last night in Mexico City. After selling $1 billion in 10-year bonds, Mexico will need to allocate an additional $1.4 billion to refinance debt that expires this year, Rodriguez said.

“We has been exploring other markets, and continue exploring Japan, but without the help of the Japan Bank for International Cooperation,” Rodriguez said, declining to offer an estimate of the new issuance.

Mexico priced 150 billion yen ($1.7 billion) of 10-year Samurai Bond on December 10 to yield 0.8 percentage point more than the yen swap rate. The notes are 95 percent-backed by the state-owned Japan Bank for International Cooperation.

Attractive Rate

The 10-year bonds sold yesterday pay a 5.125 percent coupon and were allocated among 90 international investors, mainly in the United States, Europe and Latin America, the ministry said.

“We are satisfied with the transaction. We managed to issue a 10-year new benchmark at an attractive rate that guarantees liquidity to the markets,” Rodriguez said.

Standard & Poor’s lowered Mexico’s rating one level to BBB, the second-lowest investment-grade rating, on Dec. 14, three weeks after Fitch Ratings made the same move, citing a swelling budget deficit. Mexico is the first Latin American country to sell dollar bonds overseas this year as rising investor demand for higher-yielding assets drives down borrowing costs.

“Market conditions are good and there’s a lot of liquidity,” said yesterday Gabriel Casillas, chief Mexico economist at JPMorgan Chase & Co. in Mexico City.

The extra yield investors demand to own Mexican bonds over U.S. Treasuries narrowed to 1.55 percentage points from 2.84 percentage points July 8, according to the JPMorgan’s EMBI+ index.

Poland, Turkey

Mexico’s bond sale is part of a push by emerging-market countries to sell debt in the international markets before central banks around the world withdraw stimulus measures that helped to spur demand for emerging-market assets.

Poland raised yesterday 3 billion euros ($4.3 billion) in its biggest offering of euro-denominated bonds in four years. Turkey and the Philippines also tapped international investors this month and Indonesia may sell bonds as soon as this week, according to a person familiar with the transaction.

Citigroup Inc. and Bank of America Corp. arranged Mexico’s sale, the government said in a filing with the Securities and Exchange Commission.

Mexico sold $1.75 billion of 2019 and 2040 bonds in international markets in September, two months before its credit rating was cut as tumbling oil output and the worst recession since the 1930s swelled the budget deficit. The government forecasts its budget gap will reach the equivalent of 2.8 percent of gross domestic product. That would be the country’s widest deficit since 1989, according to JPMorgan.

To contact the reporters on this story: Jose Enrique Arrioja in Mexico City at jarrioja@bloomberg.net; Veronica Navarro Espinosa in New York at vespinosa@bloomberg.net